Mortgaging My Morning Walk Talk

If I'm going to have a good day, it's got to start with a morning walk.  And with this brutally hot weather hitting near triple digits, my walks have to be in the morning so it's only 100% humidity and 80 degrees.  Bleh, my brain stops functioning above that temperature and I turn into a summer vegetable.  Luckily, once my morning walk is done for the day, I can tuck safely into my air conditioned apartment and stay functional.

Financial Theory

I usually listen to an audio lecture on my walks.  The last two Morning Walk Talks have been from a Yale University Financial Theory course by Professor John Geanakoplos, specifically about the mortgage market and the subprime mortgage crisis.  I learned...

1. the mortgage market was about as big as the stock market, in $
2. until it collapsed in Oct 2007, it wasn't given much attention by economists compared with the stock market
3. trying to make subprime (risky) loans into AAA (safe) bonds involved a lot of Titanic-esque reasoning ("Oh, the absolute worst case iceberg crash imaginable we might gash open two of the ship's compartments, but we can afford to rip open up to four compartments.  And it's totally unrealistic that would ever happen...")
4. the economy is super cyclic as we over and underestimate the value of goods and services
5. humans don't learn their lessons very well and each time we get to a new cycle, we relax, forget everything we've learned, and act like the next blowup is a big surprise.